Case: Revere Street Case Solution
The investor should cumulate the information about the recent sales of real estate property in the area which is under consideration. These data and information will be helpful in getting the current prices of property as well as the area of the property. This information might be gathered from market listing services companies, real estate agents, government entities, public auctions and private sales. Therefore, the investor has the comprehensive information about the real estate.
The investor has to also look at his/her financial position of and how much he or she will get loan from the loan. The credit worthy individual attracts the larger amount of loan which helps in acquiring expensive properties, which generate good return on investment. Specifically at what cost the investor get the loan that is related to interest payments on the loan; the bank will charge higher interest if the investment is riskier.
The cash flows are essential element of the property investment as they include the forecasted incomes and expenses to be incurred. Proper or close to reality assumptions should be taken when forecasting the cash flows of the property. All relevant income and expenses, which relate to property should be considered when making projections and estimations. Capital appreciation should be incorporated in the projection with reasonable assumptions.
The business activity of Boston is very good and improving annually, which indicates that the real estate market of Boston will increase in the future as the higher business activity generates higher employment levels. Although Boston is already urbanized city however,the stable growth rate indicates the investors’ confidence on future prices.
On average, Boston’s climate is moderate and attractive for the visitors of the United States due to the modest environment and good average annual temperature. The multiple-season city attracts many tourists as well which increases the economic activity in the city, therefore theinvestment in Boston city seems to be worthy investment for the long term as the government of the city has strict controls over pollution and environmental damages.
The vacancy rate is the percentage of all units vacant for investing in the rental property. Alexander has to consider the vacancy rates as he is concerned regarding the income from property. The higher vacancy rates would reduce the potential income therefore,strategies and tactics should be taken by the investor to reduce the vacancy rate such as higher promotional activity to increase occupancy.
Apart from the above factor, the investor should analyze the possible benefit and drawbacks of investment so that better decision of investment can be made. An example of this could be that the local government has stopped the new construction of building which helps the existing investors, because the demand of residential property is increasing, and in case the supply reduces, the price of existing property will increase and would provide benefit to the existing investors.
Acquiring those properties, which are in lower level,indicates that in areas where the prices of property are lower, there is great potential to increase and low upfront investment. Although the investors have to invest funds on improvement of property however,the income will increase due to this investment as the tenants willing to pay more for attractive houses. Moreover, the investor should make cost benefit analysis before making any investment in improvement of property.
Alexander should seek the property, which requires less mortgage finance therefore, Alexander will easily become the owner of the house because in mortgage finance, the investor has to pledge their financial asset or property until the loan is repaid to the bank. The bank takes the borrower’s assets as collateral because they want security, because in case the borrower defaults on the loan amount to repay, then the asset will be sold by the bank to get the amount back. Therefore, the lower amount of loan can be easily repaid while the higher levels of loan become a burden on the borrower………………….
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